Analysis

Chris MorrisBBC News

This is an argument that the UK has basically lost.

The EU Commissioner for Financial Services, Michel Barnier, said it was "crystal clear" that the bonus cap would be imposed.

There will be further technical negotiations on some of the details: there will be a focus on a closer link between bonus schemes and long-term performance; and perhaps an increase in the amount of bonus that can be deferred and therefore discounted when the total pay-out is being calculated.

But EU officials say any alterations will have a pretty small impact on the amount of bonus that can be paid. Other countries want to find consensus with the UK - the German and Italian finance ministers said so explicitly.

But there is not much room for manoeuvre. It is almost unprecedented for a significant piece of financial legislation to pass in Europe without British backing - but that could be about to happen. And for some in the City, that is a worrying straw in the wind.

There were signs of support for the UK from Germany and Italy at Tuesday's meeting. German Finance Minister Wolfgang Schaeuble, for example, said "it would be better'' to reach consensus with the UK.

However, the UK chancellor can only really hope to tinker at the margins of the deal, BBC Brussels correspondent Chris Morris says.

EU officials say any alterations would have a pretty small impact on the total bonuses that can be paid.

Shadow chancellor Ed Balls said it was "no wonder" that George Osborne found himself outvoted 26-to-1 at Tuesday's meeting.

"He failed to engage with these sensible proposals to limit bonuses... until the very last minute," Mr Balls said.

"It shouldn't take the European Union to rein in excessive bonuses, but George Osborne has dragged his feet and refused to act in Britain."

The bonus proposals are part of wider measures requiring banks to strengthen their capital buffers in the hope of avoiding another financial crisis.

Michel Barnier, the EU commissioner for the single market, said high bonuses were behind excessive risk-taking by bankers. "Enough is enough. We've got to put a stop to that."

'Unintended consequences'

It is very unusual for a significant piece of financial legislation to pass without the backing of the UK, whose capital London is Europe's major financial centre.

The Mayor of London, Boris Johnson, has dismissed the bonus cap as "self-defeating". The City fears the rules will drive away talent and restrict growth.

Simon Lewis, chief executive of the lobby group the Association for Financial Markets in Europe, said the proposed measures were not just a threat to the City of London, but to Europe's competitive position in financial services.

He told the BBC: "If this goes ahead, you will see the law of unintended consequences. Salaries will go up, there will be less flexibility, and the banks will be less competitive."

Last week the Federation of European Employers questioned whether restrictions on bankers' pay exceeded EU powers.

There has been speculation that the UK may try to invoke a little-used "national interest" defence to block attempts to curb bonuses.

The so-called "Luxembourg Compromise" allows a member state to block a majority decision being taken if an issue is deemed to seriously affect "a very important national interest".

Some banks have reportedly taken legal advice on whether the EU's proposals are within the law, according to the Financial Times on Tuesday. One bank had already received legal opinion that the bonus measures contravened European law, the FT said.

Mr Lewis told the BBC that he "was sure" lawyers would be looking at whether the proposals were lawful, but added that "these are early days".

The European Commission has said that it is confident the proposals are legally watertight.

Comments

Comment number 100.

Velvet Streak5th March 2013 - 14:57

@79 CodeDebuggerYou highlight a good point. Osborne doesn't even want to -cap- banker's bonuses, and that even at a monumental level.Most of the other things you list have not merely been capped, but cut in real terms, many of them so savagely as to render them dysfunctional.

Bankers add very little to society, they just gamble with our earnings.

Comment number 98.

Chris5th March 2013 - 14:56

I understand from the public's point of view why this policy is popular but I think it will be a disaster for the city of London. The countries truly benefiting from this are Singapore and New York who are already seeing an exodus of high earning bankers trying to avoid complex European tax regimes. Imagine the reduction in income tax returns if these bonuses are not paid - GB will be worse off.

Comment number 95.

brownbear5th March 2013 - 14:56

The cap is sensible. A limit at 200% of salary implies you may make a decision to get the bonus and not act in shareholder's interest. Do not forget the bonus/commission is a financial reward for working.

In industry bonuses at a level of 25% is seen as reasonable.

GO has made no case. It is the will of the people that they are capped a lot lower.

Comment number 93.

KURGANCODE5th March 2013 - 14:56

"City of London fears the rules will drive away talent & restrict growth.Most members of the 27-nation EU are firmly behind the proposals"

If this means driving away the same "talent" which caused the ruin of this country in 2008 then I welcome it.But wait a minute...drive it away to where exactly?Certainly none of the 27 EU members that's for sure.I say lets call their bluff. Go on sod off!

Comment number 89.

TheWalrus9995th March 2013 - 14:55

The financial services industry is almost the last successful industry we have.It brings in £Billions to the treasury. If we lose that what else are we going to cut to make up for the loss of revenue? Or will we be happy for increased income tax instead?

Comment number 84.

JabdiComment number 84 is an Editors' Pick5th March 2013 - 14:54

The chancellor is standing up for the well-being of Britain, although few can see it behind their seething anger towards those more successful and subsequently more wealthy than themselves. Introducing this cap will see the UK lose its competitive edge which attracts many of the richest here to work and, therefore pay obscene amounts in taxes, not to mention economic growth brought with business.

Comment number 82.

Daffodiljar5th March 2013 - 14:52

What a surprise. George supports the 'right' of bankers - who caused the crash - to reward themselves with astronomical amounts of money. Apparently, this largesse is to ensure they stay in London, creating wealth for themselves by gambling on very important things which your average prole can't understand.The poor must pay for this charade, the discipline of abject poverty their prize.

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